Hello,
One question about the fraction of wealth allocated to the three assets for alphathon. Does the fraction have to be 1 at all times, or can it be anywhere between [0, 1], with the remaining wealth held as cash?
Majid
Hi Mjdhasan,
For the current Alphaton, you can have a weight allocated to your assets anywhere between 0 and 1 (as current Alphaton rules do not allow leverage and short selling).
On the platform in general, you can also have weights above 1 to introduce leverage and below 1 to introduce short selling (https://wiki.alphien.com/ALwiki/Creating_a_payout)
An allocation below 1 indeed means that the difference between the sum of asset weights and 1 is allocated to cash.
Please see the following example to illustrate my point:
Strategy 1: equal weight, fully invested
Code:
##### equal weight, 100% of portfolio invested #####
#create portfolio
fullAllocationStrategy = portfolio(list(“USHYa”,“TYa”,“BNKa”)) %>%
payout(equalWeight) %>%
evaluate()
#visualize weights
tail(fullAllocationStrategy@weightsMatrix)
#analyse strategy
analyse(fullAllocationStrategy)
analyse(portStrat)
Out:
tail(fullAllocationStrategy@weightsMatrix)
USHYa TYa BNKa
2019-12-24 0.3333333 0.3333333 0.3333333
2019-12-25 0.3333333 0.3333333 0.3333333
2019-12-26 0.3333333 0.3333333 0.3333333
2019-12-27 0.3333333 0.3333333 0.3333333
2019-12-30 0.3333333 0.3333333 0.3333333
2019-12-31 0.3333333 0.3333333 0.3333333
> analyse(fullAllocationStrategy)Simple analysis
[1] “portfolio”
equalWeightaurian200605
Annualized Return (%) 3.74181
Annualized Volatility (%) 8.55742
Sharpe Ratio 0.43726
Calmar Ratio 0.20406
Maximum Drawdown (%) -18.33688
Alphien Drawdown Ratio 2.14280
Strategy 2: equal weight, half invested
Code:
##### equal weight, portfolio only half invested #####
#define payout
halfInvestmentPayout = function(rets){
weights = equalWeight(rets) / 2
return(weights)
}
#create portfolio
partialAllocationStrategy = portfolio(list(“USHYa”,“TYa”,“BNKa”)) %>%
payout(halfInvestmentPayout) %>%
evaluate()
#visualize weights
tail(partialAllocationStrategy@weightsMatrix)
#analyse strategy
analyse(partialAllocationStrategy)
Out:
> tail(partialAllocationStrategy@weightsMatrix)
USHYa TYa BNKa
2019-12-24 0.1666667 0.1666667 0.1666667
2019-12-25 0.1666667 0.1666667 0.1666667
2019-12-26 0.1666667 0.1666667 0.1666667
2019-12-27 0.1666667 0.1666667 0.1666667
2019-12-30 0.1666667 0.1666667 0.1666667
2019-12-31 0.1666667 0.1666667 0.1666667
> analyse(partialAllocationStrategy)Simple analysis
[1] “portfolio”
halfInvestmentPayoutaurian200605
Annualized Return (%) 1.94879
Annualized Volatility (%) 4.27886
Sharpe Ratio 0.45545
Calmar Ratio 0.20431
Maximum Drawdown (%) -9.53819
Alphien Drawdown Ratio 2.22914
Conclusion:
As seen in the examples above, being half invested reduced annualized return and annualized volatility by roughly half.
This is due to half the portfolio being held in cash.
I hope this clarifies it, let me know if you have other questions.
Aurian
Got it, thank you!